Lionbridge Benefits from Change in New World Economic Order

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Global Watchtower

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Posted by Benjamin B. Sargent, Donald A. DePalma on May 8, 2007 in the following blogs: Market Data, Business Globalization
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Number 2 language service provider Lionbridge announced its first-quarter results for 2007. CEO Rory Cowan said his company earned revenue of US$108.6 million for the quarter, up $7.3M from Q4-2006. Importantly, gross margin came in at 33.5%, an increase of 1.2% from the prior quarter. Revenue from Lionbridge's top 10 customers increased 13% over 2006. Cowan said that Lionbridge was now booking US$1 million per quarter from each of 18 clients, up 2 from last year.

What caught our attention were several buying trends that Cowan mentioned: Lionbridge's large existing accounts were growing both in size and localization maturity; new globalization business from mainstream accounts and Web 2.0 companies like MySpace was on the upswing; and companies are undertaking a broader set of languages -- tier-2 and tier-3 languages like Russian, Thai, and miscellaneous Indics mean more companies are tackling 30+ markets (Goldman-Sachs calls these the "N11" countries -- that is, the "next 11." As Lionbridge encounters what we labeled "market-driven localization" in our 2004 and 2006 reports on the Real World Enterprise and Developing Products for Global Markets -- that is, software as a component of anything worth buying, the need to sell into more markets, increasing regulations, and heightened market expectations of consumers demanding more in-language information -- their business grows.

We also noticed a new European outlook in both CEO and CFO comments. This changed focus reflects the Lionbridge acquisition of Bowne Global nearly 2 years ago and its mammoth European footprint. But the new perspective and the increasing demand for Lionbridge services also mirror a changing reality for U.S. companies in the world economic order:

Before the end of this year, the S&P 500 will reach a historic benchmark as the combined non-U.S. turnover of the 500 largest public companies in the U.S. surpasses 50%. While the 500 companies are headquartered in the States, their customers are increasingly global. For example, S&P #1 Exxon Mobil derives 70% of its sales outside of the U.S. and #2 General Electric earns half its revenue abroad.

Europe has inched past the U.S. in the combined value of its equity markets for the first time since World War I. American capital markets one day will no longer dominate the landscape. In aggregate, Europe's 24 bourses (eastern and central Europe included) increased their capitalization to US$15,720 billion (€11,819B) at the end of March vs. the US$15,640 billion market value of American exchanges.

For most companies of size, being global isn't a choice. While the U.S. still represents over 30% of world GDP, other markets are growing faster. More importantly, while combined GDP itself grew 4% in 2006, cross-border trade grew at 8% across all markets. Companies like Lionbridge provide the service-level equivalents of picks and shovels to companies competing in the increasingly globalized world economy. It's no surprise to see them growing their top-line revenue, number of clients served, and average annual spend per customer. Slam dunk.

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